"Of life's two certainties, there's only one for which you can get an automatic extension." - Source Unknown
The beginning of the calendar year is a great time to gain traction on your goals and start strong. Unfortunately. the first few months of the year also quickly bring the filing deadline for last year's tax return. Tax day is March 15th for businesses; individuals are due April 15th. You've barely made any progress in the new year and you're already subject to the IRS' plan for your calendar.
The stress of complying with the deadline alone can deflate your progress for the coming year before you've even started. In this article, we're going to share our three reasons for how you can take charge of your planning calendar again, and keep tax compliance in its rightful place - necessary, but not central.
1. Tax planning, not filing, should be used to remove the surprise and anxiety around your tax return. If you're doing regular profit projections and paying in your tax estimates quarterly, then your tax return should merely result in a conservative balance carried forward to the next year. Business owners should rarely be getting refunds back.
2. Extensions put taxes in their proper place in your business cycle. You have decisions to make, people to hire, and cashflow to manage, not to mention leaving time for winter travel plans and other priorities in your personal life. The IRS deadlines would have you believe that tax reporting is the first and foremost priority of any new year and must be resolved before anything else. And everywhere you look, everyone is talking about taxes. But YOU are the owner of your business. _You_ set your strategic priorities - initiatives that actually grow your business and result in positive cashflow. Tax filing is a by-product of a well-run company with its priorities in line.
3. Extensions ensure more time is given to filing an accurate return. Have you ever had to amend a return because additional information came in after you've already filed? Brokerage statements are incredibly notorious for coming in the mail mid-summer when you least expect them. But K1s from other businesses or certain subsequent events in your financial planning could also affect your income after year-end. Amendments to a filed tax return are not a quick process. Not only does it require a full recomputation of the tax return and all of its schedules, the form also requires a line-by-line explanation for the adjustments. And typically, they have to be filed via paper, which delays processing at the federal and state level.
I can already hear the objection: But won't an extension increase my likelihood of an audit?
This myth was allowed to perpetuate in the 70s and 80s, and just never seems to go away. It's not true, not in the data or in our experience. In practice, filing by the deadline can actually result in more errors and adjustments. Nearly 50% of the tax returns processed by the IRS every year are filed between March 1st and April 15th, and owing to a “Biggest Possible Refund” mindset, a lot of these returns claim complex tax credits (like Energy credits or the Earned Income Tax Credit) and get rushed out the door without time for scrutiny. The IRS processes the refunds, then will go back and adjust the return later with a CP-2000 notice in the mail.
Despite more complex 1099 reporting rules and unique types of innovations (like cryptocurrency) having significant tax impacts, the tax deadline has remained unchanged for decades. And, though it's been a few years, it's not uncommon to see tax laws get passed the last week of the year. Congress has shown they are unwilling to budge on changing the official deadlines (they expect the six-month extension will be filed if truly needed).
There's no need to wait for Congress to act. You are the business owner, you are the manager of your household finances. The extension keeps taxes in their proper place so you can live your life.
